ZFX - Zinifex Limited

[Realist]

Its bad call but i think for worst advice on the thread; ur advice on rent instead of buy will give it a good run!!!

To clarify, If you live in Sydney and are thinking about buying your first home NOW I recommend you don't, instead wait and rent. Unless you get a very good deal (big discount) on a place you love.

Buy later of course when the price is right. but NOW you are better of renting.

When that will change is undetermined. I'm guessing not in the next 9 months. Alot depends on interest rates.

Those who bought between now and 2003 got shat on. I kept renting and saving and investing - I'm glad I did.

 

[Realist]

As for zinifex, $10 will seem cheap in 6 months time

Why?

What will it be worth in 6 months, and why?

Pasminco anyone?

 

[nizar]

LME stocks are depleting.

Read the zinc the metal for 2006 thread... its all there.

Zinc will be in supply deficit this year... simple as that... supply/demand... whether or not hedge funds are long or short doesnt matter longer term.... when theres not enuf zinc left to meet the demand of users thats when the spike will come.

I suspect around october/november is where the spike will come; especially if those warehouses located in new orleans get hit by hurricanes like they did last year.

Century the worlds 2nd biggest zinc mine by production; about 400-500ktonnes this year their production... zinifex unhedged...

Very low p/e ratio.... next year they will earn $3 per share... so about 3x earnings... Buffet would eat this up!

And good dividends as well... maybe $1 this year? UBS thinks so...

Realist

The market will decide how much its worth in 6 months; but fundamentals look good 2 me...

 

[michael_selway]

LME stocks are depleting.

Read the zinc the metal for 2006 thread... its all there.

Zinc will be in supply deficit this year... simple as that... supply/demand... whether or not hedge funds are long or short doesnt matter longer term.... when theres not enuf zinc left to meet the demand of users thats when the spike will come.

I suspect around october/november is where the spike will come; especially if those warehouses located in new orleans get hit by hurricanes like they did last year.

Century the worlds 2nd biggest zinc mine by production; about 400-500ktonnes this year their production... zinifex unhedged...

Very low p/e ratio.... next year they will earn $3 per share... so about 3x earnings... Buffet would eat this up!

And good dividends as well... maybe $1 this year? UBS thinks so...

Realist

The market will decide how much its worth in 6 months; but fundamentals look good 2 me...

Macquaire doesn't seem immediate value in ZFX (23/6/06)...EXTRACT

Value without the trap - Avoiding value pitfalls

Event
We identify stocks that are undervalued on Macquarie.s quant models, but are
not cheap due to poor short-term performance, or for other obvious reasons
such as poor growth or lack of earnings certainty.
Rather than a simple screen of stock names, this is implemented as a
portfolio-type strategy with historical performance measured.
Impact
This strategy is more effective than simply buying the cheapest stocks (eg buying the lowest PER stocks) as it weeds out companies that the market has
correctly priced.
Stocks currently fitting the .value without the trap. criteria are listed in the table
at left and include Zinifex (ZFX), Funtastic (FUN) and Smorgon Steel (SSX).
Analysis
In Australia, simply buying stocks that are cheap (eg those on a low PE) is a profitable trading strategy.
However, there are stocks that trade on a low PER for valid reasons . buying these stocks may impede further outperformance. Finding a way to identify
and avoid such stocks improves the effectiveness of a low PER strategy.
Avoid stocks with negative short-term price momentum
Stocks with negative short-term price momentum can look cheap because the
market reacts immediately to bad news. However, it takes a while for this to
feed through to analyst earnings forecasts.
In a PE sense these stocks trade on a low PE because the .P. has adjusted
but is still awaiting the adjustment to the .E. that will soon occur.
Stocks that are cheap for a reason
Stocks can look cheap when there is reason to doubt the quality of the
forecast earnings. Specifically, the market will punish stocks:
⇒With poor earnings certainty (a large dispersion of analyst forecasts);
⇒Paying out low amounts of earnings in dividends;
⇒With a poor track record of delivering EPS growth.
In a PE sense, these stocks are not cheap. They are trading on appropriate
.P. for the quality of the .E..
Stocks are sold from the portfolio when:
⇒Last month.s performance was in the bottom 10% of
the market;
⇒Last month.s performance and the previous month.s
performance were in the bottom 30% of the market;
or
⇒Three month earnings revisions signal in the bottom
30% of the market.
The rationale for this is to quickly remove stocks from the
portfolio if they are not meeting our expectations. This
allows stocks more time to perform once they meet the
criteria, as the filter is a longer term strategy. It also
reduces the potential of holding stocks that continue to
fall while satisfying the filter criteria which may be a
result of lagged data or other negative attributes not
captured by the filter.
Outperforms simple value strategy
Stocks that satisfy only the first two criteria (cheap on PE
and excluding poor dividend yield) demonstrate the
strength of filtering out poor quality stocks based on the
three additional criteria (poor earnings certainty,
earnings growth and earnings revisions).
.Value without the trap. is a more successful strategy
than a .value only. strategy as measured by active
annualised returns and information ratios, although it is
also more volatile.

 

[nizar]

hahaha

i dont even hold MS, so to be honest i dont care what they think

like i said; every1 cares about making money for themselves; brokers are no different

i wouldnt be suprised if macbank was looking to take a stake in zinifex; but of course they wont pay market price; so they ramp it down and then pick up some cheapies

the market will punish stocks with poor earnings certainty?
LOL
yeh i can see how the market has "punished" zinifex, it used to be $3.25 in august last year....

 

[cuttlefish]

Macquaire doesn't seem immediate value in ZFX (23/6/06)...EXTRACT

Stocks currently fitting the .value without the trap. criteria are listed in the table
at left and include Zinifex (ZFX), Funtastic (FUN) and Smorgon Steel (SSX).
Analysis

I'm confused - the way I read it they are saying it does fit the 'value without the trap' doesn it? i.e. they have a positive view on it?

Do you have a link to the full article with accompanying table anywhere?

 

[clowboy]

Yea I had to read it twice to make sure I had my head around it.

The way I read it they are saying that ZFX is one of the few value stocks that currently exist that are cheap.

I could be wrong.....

 

[michael_selway]

Yea I had to read it twice to make sure I had my head around it.

The way I read it they are saying that ZFX is one of the few value stocks that currently exist that are cheap.

I could be wrong.....

http://news.ninemsn.com.au/article.aspx?id=65960

Zinifex set for bumper annual result
Thursday Jun 29 17:58 AEST
Zinc and lead producer Zinifex is set for a four-fold increase in profit this year, analysts say.

Fitch Ratings has assigned a BB-plus long-term foreign currency issuer default rating (IDR) to Zinifex, saying metal prices should remain strong in the immediate future.

The international ratings agency predicted that Zinifex would post a bumper annual net profit for the financial year ending Friday, tipping it may exceed $800 million.

Some analysts have tipped higher results, with Credit Suisse forecasting a $912 million result for 2005/06 and Goldman Sachs JBWere (GSJBW) $973.3 million.

That would be a massive increase on the $234.7 million net profit Zinifex reported for the 2004/05 year.

Analysts have forecast even stronger earnings for the new financial year, with Credit Suisse predicting Zinifex could post a $1.48 billion net profit and GSJBW a $1.22 billion result in 2006/07.

The company's mines were cost competitive compared to other operations in the western world, Fitch said, and with most of its mines in Australia, Zinifex was well positioned to take advantage of the growing Asian and Chinese markets.

"Zinifex is currently enjoying the benefits of buoyant metal prices (with zinc recently recording record high levels) and generating strong levels of earnings and cash flow," Fitch said.

Soaring zinc prices helped Zinifex post a massive 160 per cent jump in net profit to $227.6 million in the first half.

At the time, the miner predicted its performance in the second half would substantially exceed that for the first half, if the zinc price was sustained at well above average levels.

Fitch said the bumper profits were close to peak cycle earnings although it added that solid earnings should be sustainable over the foreseeable future, but would be largely reliant on continued strong metal prices.

"Market fundamentals for zinc prices (the major driver of Zinifex's earnings) appear to remain favourable over the immediate future, with concentrate supply constraints limiting metal production," Fitch said.

"This combined with continued growth in demand from China and the rest of the world is likely to result in a continued supply deficit in zinc markets, supporting strong zinc prices over the foreseeable future."

The lead and zinc were historically tough industries, experiencing volatility in both directions, Fitch said, pointing to Zinifex's narrow commodity focus.

It warned the current high zinc prices was not sustainable in the medium to longer term, particularly as more supply came into the market in 2007 and 2008.

thx

MS

 

[chennyleeeee]

I hope your right about this. Ever since May this stocks been in the red for me. I hope it goes nuts and bolts to 30 dollars + haha.

*fingers crossed*

CHEN

 

[michael_selway]

I hope your right about this. Ever since May this stocks been in the red for me. I hope it goes nuts and bolts to 30 dollars + haha.

*fingers crossed*

CHEN

It takes time, and also the DOW must hold at least

http://www.bloomberg.com/apps/news?pid=20601109&sid=aYgxkKfmHPsM&refer=

Zinifex, Asia Zinc Shares Set to Rise Amid Metals Market Slump
June 29 (Bloomberg) -- Investor Peter Greer says zinc's future is bright, even though shares of Asian producers such as Zinifex Ltd. have declined in the past two months. The stocks are worth buying because supplies are limited and use of the metal is rising, he says.

Zinc prices have plunged with other industrial metals from records reached in May on investor concern that rising global interest rates will curb economic growth. The shares fell, too, as some investors found them too expensive. Zinc producers would be unaffected by a slowdown because they already can't produce enough, said Greer at Parker Asset Management Ltd. in Sydney.

``Demand from China continues to be robust and as long as demand for steel remains high, demand for zinc will remain high,'' said Greer, who helps manage A$200 million ($147 million), including Zinifex and Kagara Zinc Ltd. shares. ``Continued supply constraints within the zinc market will help Zinifex trade at higher levels.''

More than half the world's zinc output is used to rust- proof steel for the construction and auto industries.

Shares of Zinifex, the world's second-largest zinc producer, have fallen 32 percent since peaking May 12. Korea Zinc Co., the biggest by output, has lost 39 percent from its May 11 high. Hindustan Zinc Ltd., India's No. 1 producer, is down 50 percent in eight weeks and Japan's Toho Zinc Co. has fallen by 41 percent from its February high.

Commodities Slump

The 62-member Morgan Stanley Capital International Pacific/Materials Index has declined 17 percent since peaking May 8. The index includes Zinifex and BHP Billiton, the world's biggest mining company.

Zinc for three-month delivery has fallen 25 percent on the London Metal Exchange since reaching a record $4,000 a ton on May 11. The metal traded at $2,992 a ton at 10:01 a.m. London time yesterday.

Because of consumption by steel and auto companies, warehouse inventories of zinc have slumped as much as 64 percent in the past year. Demand from China, the world's biggest steel producer, is soaring as steelmakers build new plants.

Steel output in China -- equivalent to the combined production from the U.S., Russia and Japan -- may increase 10 percent this year, according to estimates from the China Iron & Steel Association. In May, the country produced 35.9 million tons, 20 percent more than a year earlier, the International Iron and Steel Institute said in a June 19 report.

Chinese Output

Baoshan Iron & Steel Co., the No. 1 producer in China, will increase its capacity to 50 million tons a year from the current 30 million tons, President Xu Lejiang said April 17. Anshan Iron & Steel Group aims to boost capacity to 30 million tons by 2010 from 18.4 million tons, Chairman Liu Jie said March 7.

Still, some investors say rising zinc production will lead to a glut of the lustrous, blue-white metal. The annual growth rate of global mine production may more than double to 9 percent in 2007 and 2008, according to a report by Societe Generale SA.

Zinifex's shares have become too expensive after tripling in the past year, said Peter Chilton, who helps manage $800 million at Constellation Capital Management in Sydney.

``As the price went up, it became, by most criteria, expensive,'' Chilton said. He said he sold his Zinifex shares. He declined to elaborate. The stock sells for 19.7 times earnings for the past year, versus a price-earnings ratio of 16.2 for the MSCI index of Asian materials stocks.

Still, Yang Ki In, an analyst at Daewoo Securities Co. in Seoul, is sticking with his target that Korea Zinc's shares will more than double to 130,000 won in six months.

Price Forecast

Zinc prices should outperform the six base metals traded in London as consumers replenish their stockpiles, Societe Generale said in the report this month. Prices may reach $4,500 a ton, according to the firm, which is one of 11 companies trading on the floor of the LME, the world's biggest metals bourse.

Global consumption of refined zinc may exceed output by 350,000 tons this year, Societe Generale predicts. In the first four months of this year, consumption exceeded production by 93,000 tons, according to data on the International Lead and Zinc Study Group's Web site.

Sankaran Naren, who helps manage $500 million at Prudential ICICI Asset Management Co., bought 53,537 shares of Hindustan Zinc in May, a month in which the stock fell 32 percent.

``We bought after it fell,'' he said. ``If the commodity trend turns positive, the shares will go up.''

 

[red]

Interesting to note that it's now cheaper to galvanise fabricated steel than use the lesser quality dimet treatment in Australia as a result of the additional dimet labour costs.

 

[scsl]

thanks for the articles MS... definately music to my ears

i think as each day goes past in this correction, the zinc/ZFX story just becomes more compelling and serves as justification for those buying ZFX at the moment.

just wondering if any of you invest in some of the foreign zinc companies mentioned in the 2nd article ie Korea Zinc, India's Hindustan Zinc Ltd, Japan's Toho Zinc Co.?

 

[Kipp]

Good time for all the metals Fri night... Zinc up to $1.45/lb. And broker consenus pretty good for ZFX (P.E. for ~4.5-5x times with net profit of ~950mill).

Unfortunately for the Kippster.... sold out on Fri for (small) CGT losses- I thought the SP would hit resistence again at $10- but think it'll punch on through past 10 now... I've had VERY bad (unlucky?) timing with my selling lately... Best of luck to those still on the Z-train.

 

[NettAssets]

19-06-06 My interpretation is that $10 is the neckline..the price also came up to about that from underneath (the most recent day on your chart there) after it broke through it which confirms it.

I'll be looking at puts tomorrow morning I think

I guess the last couple of days answers where that neckline is. Quite a resistance at 10.68 with all the competitors marching up past it.
John

 

[michael_selway]

Australia’s cheapest mining stock?
By Mike Mangan

PORTFOLIO POINT: Zinifex’s price/earnings multiple is about half the resource sector’s average, indicating the price could have a lot of potential. But there are risks.

Zinifex was floated on the Australian Stock Exchange in April 2004 at $1.85 a share. Two years later it is $10.20. So the stock is expensive, right? Amazingly, it remains the cheapest resource stock on the Australian bourse in my opinion, and here’s why.

Zinifex is the reincarnation of Pasminco, which was sent broke by a flawed hedging strategy. Learning from this mistake, Zinifex has no hedging. That’s a fantastic attribute if the price of your main product, zinc, has risen 150% in the past 12 months.

Of all the metals, zinc has perhaps the best supply/demand fundamentals. In the year to June 30, the London Metal Exchange’s zinc stockpiles fell by 65%. By contrast, the exchange’s nickel stocks increased 30% over the same period, copper stocks rose 185% and aluminium stocks rose 42%. It’s little wonder then, that the zinc price increase of the past 12 months dwarfs all the other commodities, including gold and oil, as shown in the table.

How stockpiles and prices have moved
Commodity LME stockpiles 2005-06 (%) $US price 2005-06 (%)
Zinc – 65 +155
Copper +185 +105
Nickel +30 +45
Aluminium +40 +42
Lead +215 +10
Gold +41
Silver +52
Oil +23

Well known metal industry consultancy Brook Hunt is very bullish on zinc. It believes the current market tightness is due to limited exploration during the 1990s and therefore a lack of new projects today. Brook Hunt sees a strong rise in demand for zinc ”” up 5% ”” driven by robust global industrial production, particularly in China, leading to a supply deficit in 2006 and 2007.

It sees a modest surplus in 2008, assuming significant new mines. Brook Hunt’s base case zinc price estimate is $US2931 a tonne in 2006 and $US3500 a tonne in 2007, against a current $US3240 a tonne. But Brook Hunt thinks it’s possible zinc might sustain $US3186 a tonne in 2006, and $US4500 a tonne in 2007. Its high case assumes stronger demand (China) and further supply delays.

UBS is even more bullish, forecasting zinc prices will rise further in 2006 to $US1.65 a pound in 2006 and $US1.85 a pound in 2007. At June 30, the spot price was just $US1.48 a pound, after rising 22% in three months.

Tripled earnings

Zinifex’s second attraction is that zinc dominates its earnings and its sensitivities. In mid-June 2006, Zinifex reported an operating profit sensitivity to the zinc price of $21 million for every $US25 movement in zinc’s price per tonne.

In the six months to December 2005, zinc prices averaged about $US1470 a tonne. For Zinifex that translated to an EBITDA of $310 million and pre-tax earnings of $203 million. In the March quarter, the zinc price averaged $US2237 a tonne or 52% higher than the first half. In the fourth quarter that price was $US3300 a tonne ”” 125% higher than the first-half average! Little wonder that based on Zinifex’s own sensitivities, most brokers are forecasting a second-half profit of about $775 million or 2.5 times the first-half earnings. Consensus expects Zinifex to report earnings per share of about $2 in 2005-06, which would give Zinifex a price/earnings (P/E) multiple of 5.

But it gets better. Today the zinc price is $US3240 a tonne. If maintained in 2006-07, it would translate to fully taxed earnings around $1.5 billion or $3 a share. If so, Zinifex is trading on a P/E of 3.3 times’ 2006-07 earnings ”” surely the cheapest stock among the resource companies.

This is by no means the most optimistic scenario. Some brokers have forecast the tightness in the zinc market that could lift the metal’s price to $US4500 a tonne in 2006-07. This is surely a stretch target. But if it were to be reached, Zinifex could report 2006-07 earnings per share of nearly $5.50!

It gets better. Zinifex has about $.5 billion in unrecognised tax losses, courtesy of the Pasminco debacle. So the good news is that at the current corporate tax rate of 30%, about $1.6 billion in future pre-tax profits should be shielded from the taxman. Thus, all of the 2005-06 earnings and probably some of 2006-07 earnings should be tax-free. No doubt most former Pasminco shareholders cringe at that thought.


Debt free

But wait, there’s more. Zinifex has no debt. At December 31, 2005, it had about $70 million net cash. Indeed, at the current earnings rate it should have about $500 million net cash on the balance sheet by June 30, 2006. And if it does nothing, it should have about $2 billion net cash by June 30 next year.

In January, Zinifex announced it was fast-tracking waste-stripping at its Century mine at a cost of $120 million in 2006-07 and $80 million for each of the following two years. In addition, Zinifex recently announced additional exploration at their Rosebery mine ($27 million), a 70% “earn in” at the Menninnie Dam site ($8 million) and additional exploration at Century ($2 million). Zinifex is also conducting a feasibility study on the potential development of the Dugald River prospect. But in the context of additional cashflow of $1.5 billion in 2006-07, these sums are trifling.

A go-ahead at both Dugald and Menninnie, would require an investment of $700–800 million. But this investment would be spread over the next five years and not commence in any substantial way before mid-2007.

Zinifex may acquire assets. It has flagged interest in either base or niche metals such tantalum, a metal that sells for about $100,000 a tonne, and continues to buy back its own shares, although in the 16 months since the buyback commenced, it has only bought back 11.7 million shares for $56 million ”” an average price of $4.80.

But in the absence of a substantial acquisition, Zinifex has the financial capacity to pay dividends or make a capital return of more than $3.50 a share by the end of 2006-07 and still be largely debt-free! Already most brokers are tipping Zinifex to pay a 2005-06 second-half dividend of 40–95 ¢ fully franked and a dividend of up to $1.70 in 2006-07.


Compelling valuation

Now for the best part. The average resource company is trading on 10.3 times 2005-06 and 9.6 times 2006-07 earnings. By contrast, at $10.20, Zinifex is trading on about 5.1 times 2005-06 and 3.2 times 2006-07 earnings! If Zinifex was to trade at a resource market multiple, it implies a share price of $20–30. As a pure play metal let’s apply a 25–30% discount; that translates to $15–20 per share, give or take.

And this is before capital management. I think Zinifex has the capacity to return more than $3.50 a share in the next year and remain largely debt-free. Such a capital return puts this company on a P/E of 2–3 times in 2005-06/2006-07, give or take. If I’m right, then a fairer reflection of Zinifex’s value, assuming a $3.50 capital return, would be $18–23.

So at the current price you get a pure play resource stock, with no debt, extensive tax losses, with a high possibility (in my view) of dividends/capital return of up to $3.50 a share, and exposed to the metal with the best fundamentals. And you get all this for a P/E of under three times 2006-07 earnings. If I’m just half-right, Zinifex is a $15 stock, in my opinion.


Risks

Of course there are risks. The three significant ones are mine life, the value of the Australian dollar and commodity prices.

Mine life: One of the recurrent criticisms of Zinifex is a short mine life. More than 85% of Zinifex’s reserves are at the Century mine. Based on a long-term average zinc price of $US1150 a tonne (about one third the current price), the reserves at Century could be exhausted in a decade. However, successful exploration at Rosebery and development of Dugald River could extend reserves another five years.

Dugald River has a resource of 48 million tonnes, about two-thirds the size of Century. Initial evaluation shows a resource containing 12% zinc, 2% lead and some silver. And Dugald is close to existing mine infrastructure in western Queensland. Zinifex hopes it could produce 1.8 million tonnes a year for 17 years. A decision to start construction is due in the next nine months.

The Rosebery mine life extension has already firmed up an additional resource of 1.9 million tonnes with an average grade of 15% zinc, 4.8% lead, as well as copper, silver and gold showings. Zinifex’s exploration efforts are designed to extend the life out to 2015-16 or 2020-21.

Early exploration at Menninnie has revealed encouraging results, with a 19-metre intersection containing 13% lead/zinc, and a further 56-metre section that contained low-grade zinc results. Aberfoyle had previously estimated the site contained a resource of seven million tonnes at 17% zinc/lead. A go-ahead would require an investment of $200–300 million investment.

to be continued...

 

[michael_selway]

Overall I expect ongoing exploration to comfortably increase Zinifex’s resources over time.

Currency: Zinifex’s biggest sensitivity is to the value of the Australian dollar. According to Zinifex, every one-cent rise against the US dollar reduces Zinifex’s operational earnings by $27.5 million. Thus a rising Australian dollar is bad, a falling dollar is good.

Commodity prices: The biggest near-term risk is the zinc price. No one can be sure how much the price is being driven by financial investors rather than end product users. There is a strong suspicion hedge funds and perhaps some mainstream investors have been treating all metals including zinc as a “new” asset class. So they have been investing in little old zinc ingots and locking them away in the back safe. If so, the current run in all the metals is bound to end in tears at some point; probably when investors realise that all those ingots (including zinc) might look good, but they don’t actually produce an income.

A possible catalyst for such a realisation might be continuing unexpected interest rate rises. There is little doubt global interest rates are on the rise. And there is plenty of evidence that central bankers around the world are beginning to view the commodity price boom with alarm. Many consider the current rise in metal prices as just another asset bubble, similar to so many we have seen over the past 20 years. As interest rates continue to rise over the balance of 2006, liquidity will be withdrawn from the market, thereby pressuring all metal including zinc prices.

As stated above, Zinifex is very sensitive to the price of zinc. That’s fantastic when the price is going up but much more sobering if/when the price falls. Zinifex has stated that every $US25 movement in the price of a ton of zinc affects operating earnings by $21.3 million. In percentage terms, that means every 1% move in the price of zinc impacts Zinifex’s earnings per share by more than 2% in 2006-07, once all the tax losses have been utilised. So with the zinc price gyrating 1–3% every night, that leaves plenty of potential volatility in the underlying share.

Offsetting these risks is the thought that Zinifex is already trading on a P/E about one-third that of the average Australian resource company.

Summary

Given the above scenario, I expect Zinifex to provide one of the best trading opportunities in the market over the next quarter. Longer term, risks may emerge in sharper relief. But until then, enjoy the ride.

The author is a happy shareholder and recently added to his position via derivatives.

thx

MS

 

[astroboydivx]

MS,

I'm appreciating your contributions but are you aware that by quoting the entire text from the Eureka Report article you are breaking the law. You should at least mention your source.

 

[cuttlefish]

thats got to be one of the most boring days of zfx trading ever - sideways in a 5c wide band since just after 11:00 ... YAWN ... maybe it'll do something exciting towards the close ...

 

[silence]

Well if we look at head + shoulders theory, it will now face a longish term downwards decline - right?

Recent peak at $11.20 could be 2nd point in longterm downtrend?

 

[Kipp]

Well if we look at head + shoulders theory, it will now face a longish term downwards decline - right?

Recent peak at $11.20 could be 2nd point in longterm downtrend?

Do you have a link to Head and Shoulders theory explained?
THanks